US federal securities and commodities regulators are quietly examining whether ethereum (ETH), the world’s second-largest cryptocurrency, should be classified as a security.
According to the Wall Street Journal, regulators at the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) are investigating whether many popular cryptocurrencies — not just initial coin offering (ICO) tokens — should be regulated as securities under federal law.
A particular focus for the inquiry is ether — the native asset of the Ethereum blockchain — units of which were originally sold through a presale in 2014, though new currency units have been issued through mining since the network’s launch in 2015.
Ethereum now ranks as the world’s second most valuable cryptocurrency, with a circulating market cap of approximately $65 billion.
The report is light on details, but it cites sources close to the matter who states that regulators are evaluating whether ethereum’s creators “exert significant influence over their value, in the same way, a company’s stock price depends on its managers and their strategy, performance, and investments.”
Last year, for instance, the ethereum price briefly plunged in response to a false rumor that creator Vitalik Buterin had died in a car crash, though some analysts believe the project has matured to the point where a similar incident would not cause a marked effect on ETH’s value.
Regulators may also consider what level of demand for ether comes from people who use it to run decentralized applications (DApps) on the network, as opposed to speculators who purchase it merely for its investment potential.
“Applying those factors, it’s still sort of gray,” one person familiar with the probe told the publication.
As CCN reported, a working group comprised of venture capital firms and industry lawyers recently met with SEC officials in a bid to convince the agency to provide formal guidance that ether and certain initial coin offering (ICO) tokens are not securities, but people familiar with the meetings said that the agency was not overly receptive to the proposal.
Recently, former CFTC Chairman Gary Gensler said that he would classify ethereum and ripple (XRP) as “noncompliant securities,” though he conceded that regulators may determine that ethereum has become so decentralized since its network launched that it no longer meets this classification.
Last week, SEC Chairman Jay Clayton told a congressional subcommittee that bitcoin is a pure medium of exchange and “has been determined by most people not to be a security,” and the publication confirmed that bitcoin is not a focus of the current regulatory probe.